Japan's leading indicators, Japan as leading indicator

Despite the recent pick-up in capital spending, Japan's economy remains vulnerable.

Japan's index of leading economic indicators fell to 25 percent in April from 36.4 percent in March, indicating that growth will slow. Set against this was the news that Japanese consumer confidence rose to 48.3 in May from 47.4 in April.

For the first quarter, economists surveyed by Bloomberg think that Japan's economy may have expanded at an annual rate of 5.4 percent, slightly more than the 5.3 percent initially estimated by the government.

Meanwhile, Japan's current account surplus in April expanded to 1.39 trillion yen (US$13 billion) from 1.37 trillion yen in March, seasonally-adjusted, according to the Ministry of Finance today. From a year earlier, the surplus widened 5.2 percent to 1.63 trillion yen. Exports increased a seasonally-adjusted 0.8 percent to 4.98 trillion yen in April from March while imports, boosted by high oil prices, rose 5.4 percent to 4.12 trillion yen.

Following the posts by Barry Ritholtz and myself on US Treasury yields declining in a similar manner to Japan in the 1990s, Michael of Global Trader's Diary says that the trend in Japanese yields may not be a leading indicator of US yields. Rather, US yields have in fact been declining along with Japanese yields for the past 15 years, and that if the downtrend in JGB yields is reversed, then US yields would "continue tracking JGB yields and head higher".

Of course, while asset bubbles and their consequences often show some similarities, there are usually differences as well. In the comparison between Japan and the US, I would point to the fact that in the 1980s, Japan's stock market and property bubbles were largely simultaneous phenomena, and their respective peaks occurred about a year apart from each other.

The US housing boom, on the other hand, largely occurred after the end of the stock market bubble of the 1990s and is obviously not over, five years after the stock market bubble peak. So there is a difference between the bubble phenomena in the two countries, and their aftermaths are therefore likely to be at least somewhat different.

Michael pointed out some of the differences between the two in an earlier post.

Bill Fleckenstein also recently discussed the differences at MSN Money.